Correlation Between Granite Point and Redwood Trust

Can any of the company-specific risk be diversified away by investing in both Granite Point and Redwood Trust at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Granite Point and Redwood Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Granite Point Mortgage and Redwood Trust, you can compare the effects of market volatilities on Granite Point and Redwood Trust and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Granite Point with a short position of Redwood Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Granite Point and Redwood Trust.

Diversification Opportunities for Granite Point and Redwood Trust

0.03

Correlation Coefficient

Granite Point  Redwood Trust

Significant diversification

The 3 months correlation between Granite and Redwood is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Granite Point Mortgage and Redwood Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Trust and Granite Point is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Granite Point Mortgage are associated (or correlated) with Redwood Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Trust has no effect on the direction of Granite Point i.e., Granite Point and Redwood Trust go up and down completely randomly.

Pair Corralation between Granite Point and Redwood Trust

Assuming the 90 days trading horizon Granite Point Mortgage is expected to generate 1.09 times more return on investment than Redwood Trust. However, Granite Point is 1.09 times more volatile than Redwood Trust. It trades about -0.01 of its potential returns per unit of risk. Redwood Trust is currently generating about -0.02 per unit of risk. If you would invest  1,741  in Granite Point Mortgage on December 29, 2024 and sell it today you would lose (11.00) from holding Granite Point Mortgage or give up 0.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Granite Point Mortgage  vs.  Redwood Trust

Granite Point Mortgage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Granite Point Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Granite Point is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Redwood Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Redwood Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Redwood Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Granite Point and Redwood Trust

The main advantage of trading using opposite Granite Point and Redwood Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Granite Point position performs unexpectedly, Redwood Trust can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Redwood Trust will offset losses from the drop in Redwood Trust's long position.

The idea behind Granite Point Mortgage and Redwood Trust pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Fundamental Analysis module to view fundamental data based on most recent published financial statements.